IPO approvals on the decline as businesses reluctant to go public

Infographic: TBS

The approval of initial public offerings (IPOs) to raise capital from the stock market fell in the fiscal 2022-23 compared to the previous year, as entrepreneurs were reluctant to go public.

According to data from the Bangladesh Securities and Exchange Commission (BSEC), only six companies received approval to raise Tk641 crore through IPOs for business expansion.

In fiscal year 2021-22, eight companies raised Tk674 crore by issuing new shares, whereas the previous year saw 16 companies raise Tk1,684 crore.

In FY23, two banks and three insurers entered the market to comply with regulatory requirements, while a manufacturing company raised capital for business expansion.

BSEC data show Global Islami Bank raised Tk425 crore and Midland Bank Tk70 crore by issuing new shares at a face value of Tk10.

In addition, Chartered Life Insurance raised Tk15 crore, Islami Commercial Insurance Tk20 crore, and Trust Islami Life Insurance Tk16 crore. All these companies issued new shares at a face value of Tk10 to comply with the minimum paid-up capital requirement as per the Insurance Act.

The only manufacturing company, Asiatic Laboratories, engaged in producing drugs, raised Tk95 crore through the book-building method to expand its capacity and cater to the market further.

Speaking on condition of anonymity, a senior BSEC officer mentioned that entrepreneurs were reluctant to go public. This hesitation stems from the obligation that, when a company enters the stock market, it must regularly share business updates with its shareholders.

Additionally, the company's income-expenditure accounts have to be published regularly, and entrepreneurs may be hesitant to disclose such financial details and business news publicly, he said.

The official said most business firms are family-oriented, and therefore, entrepreneurs prefer keeping ownership within the family.

Additionally, several issue managers said well-performing companies have lost interest in entering the stock market due to its dismal conditions, easy access to bank loans, and the regulator's conservative approach to granting approvals.

Sayadur Rahman, former president of the Bangladesh Merchant Bankers Association, told The Business Standard, "Entrepreneurs are currently less inclined to raise funds from the capital market because obtaining funds from banks is easier compared to the challenges of the capital market. The numerous regulatory requirements involved in going public appear particularly daunting to them."

He said the country's big groups have no problem with funds. However, the government should take the initiative to encourage them to list with the stock market.

Regarding the tax rate, he said that currently the corporate tax gap between listed and non-listed companies is 7.5%. But this does not encourage businessmen. Hence, the difference in corporate tax needs to be widened.

Sayadur Rahman said that until now, no concerted initiative has been taken by the government to increase the listing of companies on the stock market.

"An integrated discussion with all stakeholders is needed. If constructive situations can be created by analysing the overall situation, confidence will increase," he added.

He said the Bangladesh Bank and the National Board of Revenue should come forward to encourage companies to enter the share market.

"The stock markets in neighbouring India and Sri Lanka are also much ahead of us. If they can make such significant improvements, why can't we? We need to focus on learning from them," he pointed out.

According to the BSEC, a separate platform for bond trading, an SME platform for listing small and medium companies, and an Alternative Trading Board (ATB) for trading non-listed companies have already been launched to increase the depth of the stock market and public participation.

As of the fiscal 2022-23, there are 356 listed companies on the Dhaka Stock Exchange (DSE), and 36 mutual funds are being traded on the bourse. Additionally, there are eight debentures, 242 government treasury bonds, and 11 corporate bonds listed.

In addition, there are 17 companies listed on the DSE SME platform and four firms on the ATB.